Banks have opposed the proposal to hike deposit insurance cover five-fold

A recent press report said that banks have opposed the Damodaran Committee’s proposal for a five-fold increase in deposit insurance cover. Banks feel that the increase in deposit insurance cover could have serious cost implications for the banks due to higher premium outgo. Reports said that the RBI’s Committee on Customer Service in Banks chaired by former SEBI Chief Mr. M. Damodaran had suggested that the deposit insurance cover should be raised five-fold to Rs 5 lakh from Rs 1 lakh so as to encourage individuals to keep all their deposits in a bank convenient for them. Banks have told the RBI that the current deposit insurance cover per capita gross domestic product in India was enough when compared with the global benchmark. According to the RBI reports currently the deposit insurance cover in India is 1.63 times per capita GDP as on March 31, 2011. It said that the cover was comparable with the international benchmark of around 1-2 times per capita GDP prior to the financial crisis. Reports said that one of the reasons for commercial banks to be unfavorable to an increase in deposit insurance cover is that smaller banks, especially from the co-operative sector, could use this fact and the deposit rates that they regularly offer to attract depositors. Recently banks have asked the RBI to take a break from its monetary tightening cycle which has made home loan and other loans very expensive.